Option Trading for Women
My sister recommended this book to me and I am deciding if I should read it. It’s supposed to be very good. But my husband and I don’t invest in the stock market beyond our 401(k) plans. Options trading has always seemed very risky to me.
I asked my brother what he thinks of options trading and he said that if Warren Buffett can lose $500 million trading options then what chance have we? I know Warren Buffett is the wealthiest man in the world but I did not know he could lose $500 million.
Sisters do not always agree on how to manage the money but I see where little sis is coming from. She wants to invest the extra money she has set aside with only a little risk. Now options trading is risky but when you sell options you make money from the options and then from selling the shares of stock when your options contract expires. The double-pay is what makes the deal so sweet.
But what if the buyer walks away from the contract? That is where my sister’s plan comes in. She plans the sell the stock anyway. She wants to buy stocks when they are at the low end of their trading cycle and sell them below market price when they are at the high end of their trading cycle. By staying inside the trading cycle she will avoid some of the worst mistakes traders make.
And that is where I had to start reading about trading cycles. I don’t what that means, exactly. Well, now I do. It means that a typical stock bobs up and down with the market when it doesn’t have any news of its own to make. If a company announces a major deal or product release its stock may take a sharp dive or start gaining in price. But normally it just moves up and down only a little bit.
Where options traders make money is on volume. A trading fee may be $10 for 10 shares of stock or 100 shares of stock. The more shares you buy or sell the less expensive each share becomes. This makes sense but you have to tie up your money in stock. Selling options contracts gives you back some of that money.
When I look at options trading websites that include tutorials and broker reviews my head wants to spin. I know there are tools to help you research options but I don’t understand how the prices are set. I looked at an example of a possible options trade for Intel on Forbes and the language doesn’t make any sense to me. I think the options cost 70 cents per share. If you sell and option to sell 100 shares in the future you will receive $70 (less the broker commission).
Maybe you have to sell options on 1000 shares to make this worthwhile. But to buy 1000 shares of Intel stock would cost about $32,000 plus the broker fee. Sis could do that but I don’t have that much money to invest.
Oh little baby sister you know I love you but I think your game is too rich for my blood. Good luck and you can buy me lunch if you make a profit on the shares too!